What is Related Party Transactions?
A related party transaction is any transfer of resources, services, or obligations between a reporting entity and a party that can influence or be influenced by it, such as a parent company, subsidiary, key management member, or close family. These transactions require special disclosure to keep financial statements transparent.
How It Works
- Identify the related parties: parent, subsidiaries, associates, joint ventures, key management, and their relatives.
- Record every transaction (sales, purchases, loans, leases, guarantees) at the agreed price.
- Disclose in the notes the nature of the relationship, transaction amounts, outstanding balances, and any provisions for doubtful debts.
- Disclose terms and pricing policy, especially whether the transaction was at arm’s length.
Saudi Context
Saudi-listed companies follow IAS 24, and the Capital Market Authority requires detailed related party disclosures in annual reports and any material transaction announcements. ZATCA also examines related party transactions for transfer pricing risk, especially for cross-border deals within multinational groups operating in the Kingdom.
Example
A Saudi parent company sells inventory worth SAR 1.2 million to its 100%-owned subsidiary at cost. The transaction is disclosed in the consolidated financial statements as a related party transaction with the relationship, value, and outstanding balance at year-end.